LONDON- Britain’s pound will gain more than 3% against the dollar this year, supported by interest rate differentials and hopes for a smooth departure from the European Union, a Reuters poll found on Friday.
Sterling has gyrated wildly on any snippet of news about Brexit, largely ignoring economic data, and soared more than 2% after Prime Minister Boris Johnson won a resounding election victory in December, leading markets to believe an orderly exit from the EU was all but certain.
It has since dropped back and was trading around $1.30 on Thursday as Johnson has signalled he plans to take a hard line in talks with the EU, raising fears about the prospect of a new cliff edge at the end of the year if no deal is reached.
But the poll of nearly 60 foreign exchange strategists, taken this week, said the pound would be up at $1.32 at the end of this month – when Britain and the EU are due to part ways – and will have risen to $1.35 by the end of 2020.
“Knee-jerk moves and profit-taking aside, the trend in 2020 remains for a drift higher in GBP/USD in our view and we look to renew our GBP long bias,” said Jordan Rochester at Nomura.
“The removal of near-term hard Brexit risks, the widely expected fiscal expansion, U.S.-China trade tensions lower and a global recovery in economic data suggest the Bank of England will stay on hold.”
Most major central banks eased monetary policy last year, including the U.S. Federal reserve, which cut interest rates three times in 2019, but the Bank of England has kept its key policy rate steady at 0.75%.
The Bank is not expected to move interest rates until 2022 at least, and while the European Central Bank eased policy late in 2019 it is expected to stay on the sidelines for the next two years.
So against the common currency the pound will have barely moved by the end of the year. On Thursday one euro would get you 85.16 pence and at the end of 2020 its value will be little changed at 84.5p, the poll found.
(Content and photos syndicated via Reuters)
